A renewed legislative effort to raise the national minimum wage and give a boost to the millions of Americans mired in working poverty was a featured promise made by President Obama in Tuesday’s State of the Union address.
But political reality is likely to intrude on the president’s vision as familiar foes of wage hikes for working Americans stand ready to claim corporate profits would be hurt if employees are paid more failed. The issue is also haunted by Obama’s own broken campaign pledge to aggressively increase the federal floor for worker pay by the end of his first term.
The president outlined a broad plan to ask Congress to increase the federal minimum wage from the current rate of $7.25 up to $9, the hike coming in smaller chunks through 2015 in a bid to appease concerns of executives and business interests. Other than indicating that future wage increases would be tied to inflation, very few specifics accompanied Obama’s SOTU promise on how such legislation could make it through a divided Congress.
There is no question that increasing pay for tens of millions of working Americans by nearly $2-per-hour would make a significant difference in their financial security as well as the nation’s overall fiscal health, now sufferring from a dangerous chasm between rich and poor. Falling incomes and stagnant wages have become a hallmark of the American economy of the last decade or more, a crippling affliction made that has grown worse in the wake of 2008′s Great Recession.
Obama called it “wrong” that families with parents working minimum wage jobs still fall well below the poverty line, and often receive few or no benefits due to the shift to part-time employment by major companies.
President Obama called on Congress to raise the federal minimum wage to $9 an hour from $7.25 and to automatically adjust it with inflation, a move aimed at increasing the earnings of millions of cooks, janitors, aides to the elderly and other low-wage workers.
The proposal directly addresses the country’s yawning levels of income inequality, which the White House has tried to reduce with targeted tax credits, a major expansion of health insurance, education and other proposals. But it is sure to be politically divisive, especially given the weakness of the recovery and the continued high levels of joblessness.
The proposal would see the federal floor on hourly wages reach $9 in stages by the end of 2015. Tying the minimum wage to inflation would allow it to rise along with the cost of living. If enacted, the measure would boost the wages of about 15 million low-income workers, the White House estimated. The $9 minimum wage would be the highest in more than three decades, accounting for inflation, but still lower than the peaks reached in the 1960s and 1970s.
“Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong,” Mr. Obama said in his State of the Union address Tuesday night. “Let’s declare that in the wealthiest nation on earth, no one who works full time should have to live in poverty.”
Yet to be seen is how determined the president and the White House are in making a substantive effort to support a proposal currently in an embryonic stage. Powerful interest groups, lobbyists and their political allies are already lining up to lambaste the very idea that workers ought to be paid more after nearly a decade with no change in the nation’s wage floor.
Sen. Marco Rubio, the rising “tea party” star picked to deliver the Republican response to the president’s address, said in an interview that he doesn’t believe in any federally stipulated minimum wage. let alone raising the current standard. The Florida conservative said that a “minimum wage law doesn’t work” — a sentiment shared by House Speaker John Boehner — even though he supports seeing American workers “make as much as they can.”
“I support people making more than $9. I want people to make as much as they can. I don’t think a minimum wage law works,” Rubio told Charlie Rose. ”We all support — I certainly do — having more taxpayers, meaning more people who are employed. And I want people to make a lot more than $9 — $9 is not enough. The problem is you can’t do that by mandating it in the minimum wage laws. Minimum wage laws have never worked in terms of having the middle class attain more prosperity.” What works, he said, is helping the private sector grow.
House Speaker John Boehner (R-Ohio) later concurred, telling reporters, “When you raise the price of employment, guess what happens? You get less of it.”
With Republicans controlling the House and able to filibuster almost any bill in the Senate, Americans are looking at slim chances at higher wages and a boost to their shrinking take-home pay, already drastically reduced this year by the expiration of the payroll tax cut that mostly helped workers making less than $100,000 a year.
Opposition to a higher minimum wage among traditionally conservative lawmakers is actually in stark contrast to the beliefs of many of the nation’s largest and most successful businesses. Many executives and business owners know that paying higher wages not only is a moral practice, it makes the best fiscal sense for their business and creates a stronger economy that will end up increasing their own profits.
Whole Foods CEO John Mackey has made headlines for his criticisms of President Obama’s economic policies, but he agrees with the call for a higher federal wage floor. Joining the organic grocer in supporting a wage hike is Costco, where executives noted that the overall health of the economy would be “better of” when low-wage workers are paid enough to eschew government services like food stamps and are able to afford health care or a home.
Studies are one thing, but business in the real world of payroll and profit margins is another. There are many examples of business leaders who believe that paying well above today’s minimum wage not only does not hurt their bottom line, but helps it. Take, for example, Whole Foods Markets (WFM), led by libertarian CEO John Mackey. According to Kate Lowery, head of public relations at Whole Foods, the average non-executive hourly pay is $18.63. Executives there have argued that higher morale, presumably in part because of better pay, leads to higher productivity and lower turnover.
That sentiment is echoed at retail giant Costco (COST).
“If you have the best people in the marketplace working very hard because they’re being paid better, you end up spending less on labor, not more,” Joel Benoliel, senior vice president and chief legal officer at Costco, said in a recent interview. “There’s a fundamental misunderstanding among many employers who focus on how little they can pay. Our philosophy is that we actually pay less for labor per hour when we look at productivity and sales per hour.”
“We’d all be better off in our country if the lowest-paying jobs paid enough for people not to be on food stamps and not to be on welfare when it comes to going to the hospital,” he added.
Driving skepticism among activists and businesses supportive of a wage hike is President Obama’s own failure to live up to the promise he made on the issue during the 2008 campaign. Obama made headlines when he pledged to raise the federal minimum to at least $9.50 by 2011, a goal that was quickly forgotten in the post-recession economic turmoil and the run-up to 2012′s bitter presidential campaign.
Politifact rated Obama’s failure on a minimum wage hike a “broken promise” from his first term, and many are wondering if the political will is there for renewed action as his second begins with more partisan gridlock.
Whether the president is up to the challenge he proposed in his State of the Union remains to be seen, but something no one can question is how desperately Americans in low-paying jobs need a helping hand to dig out from the poverty created by the nation’s dismally low wage floor.
Holding at the current $7.25 an hour rate since 2007, the federal minimum wage stands considerably lower than its inflation-adjusted peak of $10.56 in 1968. Indeed, the “buying power” of the minimum wage has plummeted in the last 45 years as increases in the minimum became less and less frequent.
The chart highlighted at the top of this article shows that the inflation-adjusted worth of the national wage floor is at a historically low level, a trend that has forced many working Americans into poverty and helped create the dramatic income gap currently plaguing our economy.
The downward trend in actual wages for low income workers has been concurrent with a general decline in income and wages among all Americans, including the terrible “lost decade” from 2002 through 2012 when wages remained virtually stagnant and incomes actually fell for most households.
One of the greatest benefits of increasing the minimum wage is that it does not only affect those making the current rate of $7.25 an hour. Besides the instant economic jolt of higher take-home pay for as many as 20 million Americans, workers across a broad section of wage rates would see their pay increase in order to match the moving scale of the federal minimum.
Opponents routinely pit the minimum wage as an issue of “class warfare” against the rich and middle-c`lass, but the facts show the exact opposite to be true. The very groups of workers struggling through the “lost decade” of stagnant growth would stand to gain the most.
Most cases against a wage hike are fairly easy to dismantle upon closer inspection, namely because several points stand out to highlight the ecomomic warfare waged against low-income Americans by lawmakers that have fought minimum wage increases.
The United States ranks very poorly among Western nations in comparing national minimum wages. Countries like Great Britain and France have minimums of at least $10 and hour, while the US stands with economic basket cases like Greece and Spain with unnaturally low wages.
And because there are several states with minimum wages above the federal rate of $7.25, it’s fairly easy to compare things like economic growth and jobless numbers among states with varying wage floors. Contrary to the claims of business interests and their political friends, most data shows that a state’s minimum wage actually meant a lower unemployment rate.
We also know that the U.S. minimum wage is low compared to its counterparts in other advanced countries. In France and Ireland, for example, the minimum remuneration level is more than eleven dollars an hour. Even in Great Britain, which is usually regarded as a country with a flexible, U.S.-style labor market, it is close to ten dollars an hour. Another informative chart, this one from Business Insider, shows that the U.S. minimum wage is comparable to ones in places like Greece, Spain, and Slovenia—countries where G.D.P. per capita and labor productivity are markedly lower than here in the United States. We have an advanced economy but a middle-level minimum wage.
A second important and (largely) undisputed finding is that there is no obvious link between the minimum wage and the unemployment rate. During the nineteen sixties, when the minimum wage was raised sharply, unemployment rates were sharply lower than they were in the nineteen eighties, when the real value of the minimum wage fell dramatically. If you look across the states, some of which set a minimum wage above the federal minimum, you can’t see any sign of higher rates leading to higher unemployment. In Nevada, where the national minimum of $7.25 an hour applies, the jobless rate is 10.2 per cent. In Vermont, where the minimum wage is $8.60 an hour, the unemployment rate is 5.1 per cent. What these figures tell us is that other factors, such as the overall state of the economy and how local industries are doing, matter a lot more for employment than the level of the minimum wage does.
Perhaps the most insidious charge against raising the minimum wage is that such a government mandate would be devastating for small business and industries currently driving job growth in the US. This is probably the most effective rhetoric used by opponents of a wage hike, as no one wants to endanger small businesses or local companies.
However, this is simply not true. Most small businesses already pay over minimum wage in order to attract better workers or compensate for the lack of benefits offered by larger employers. And industries with the hottest job growth typically offer much higher salaries or wages to fill positions requiring specialized training or education.
The companies with the largest percentage of minimum wage employees are actually large corporations making huge profits, none of which are shared with workers struggling to escape poverty at low-wage, no-benefit jobs while executives are paid annual salaries of $10 million or more.
Rather than small or local businesses, minimum wage workers are concentrated generally where one would think; service industries like food, accommodations, and retail.
The National Employment Law Project looked at Census data from 2009–11 and found that 66 percent of low-wage workers are employed by large businesses with over 100 employees. Moreover, it found that the fifty largest employers of low-wage workers have all recovered from the recession and are in strong financial positions:
92 percent were profitable last year.
78 percent have been profitable for the last three years.
75 percent have higher revenues now than before the recession, and 73 percent have higher cash holdings.
63 percent have higher operating margins than before the recession.
Also, the study found that at these fifty firms, executive compensation averaged $9.4 million, and they have returned $174.8 billion to shareholders in dividends or share buybacks in the past five years.
Walmart, for example, employs 1.4 million Americans, and a vast majority of them at wages under $10 per hour. The highest-paid executive, however, earned over $18.4 million last year. Other key offenders are Yum! Brands (Taco Bell, Pizza Hut, KFC), McDonald’s, Target, Sears, Doctor’s Associates Inc (Subway), TJMaxx and Burger King.
Other findings of the National Employment Law Project study mentioned above show that 66 percent of minimum-wage workers are employed by large corporations with at least 100 employees, and average executive compensation at the companies with the most minimum wage workers was a staggering $9.4 million last year, plus nearly $200 billion in dividends for wealthy shareholders or stock buybacks to fund executive bonuses.